Can India Unlock a US$500 Billion Export Opportunity? — CSEP Seminar

ELI5/TLDR

A CSEP team ran a gravity model on India’s trade flows and found India is leaving roughly $500 billion of goods exports on the table — about double what it actually exports — and that gap maps to roughly 24 million missing formal jobs. Almost half the missing exports sit in India’s neighbourhood, with China alone accounting for $175 billion of unrealised potential. The authors argue the problem isn’t the world going protectionist but India’s own self-imposed tariffs, an over-appreciated rupee, falling integration into global supply chains, and a refusal to join blocs like RCEP and CPTPP. The discussants push back hard on the precision of the number but largely agree on the direction: the elephant could dance, India just keeps tying its own feet.

The Full Story

The setup: why this paper, why now

The seminar is built around a CSEP working paper by Baran Pradhan, Sanjay Kathuria and T.G. Srinivasan called Letting the Elephant Dance. Kathuria opens by addressing the obvious objection — why care about trade when the global system is fragmenting — and answers with the data. World services trade hit an all-time high of 15.2% of GDP in 2024, goods trade grew 4.6% in 2025, and even the WTO’s slowdown projection for 2026 still has goods trade expanding. The world has not deglobalised. It has just gotten harder to trade.

“The world really has not deglobalised contrary to what we… a lot of talk around it. It has just become harder to trade, more difficult, more frictions, more fragmentation.”

The framing then turns inward. India’s central economic problem is jobs — not GDP growth, not capital formation, but formal wage jobs at scale. Agriculture absorbs 42% of the workforce at low productivity. Manufacturing is stuck under 13% of employment versus 30% in China and 22% in Vietnam. Services exports are a genuine bright spot but they cannot absorb the labour pool. The export agenda, the authors argue, is fundamentally a labour-market agenda.

The Mandeng framework and where India sits

Baran walks through the sectoral mapping using the Mandeng framework, which sorts products on a 2x2 grid based on whether global demand is rising or falling and whether India’s share in that product is rising or falling. Rising stars (winning in growing markets) include pharmaceuticals and some metallic products. The painful quadrant is “missed opportunities” — growing global markets where India is losing share. Sitting there: textiles, leather, footwear, apparel. The labour-intensive sectors. One in three of India’s top exports is losing share in a growing market.

When the framework is applied by region, India has actually gained share almost everywhere except North America and Europe. The exception is South Asia, where exports have fallen as a share — which is where the big neighbourhood opportunity is hiding.

The comparison that stings

The paper benchmarks India against Vietnam, Malaysia, Thailand and China. The first three were textbook export-led economies, with exports often above 150% of GDP. China showed that even a giant continental economy could run an export-led playbook — its export-to-GDP ratio hit roughly 33% at the point when its export value matched India’s recent peak. India is at 773 billion in exports but its export-to-GDP ratio has stayed low throughout. The cleanest summary line:

“India is 18 years behind China.”

India’s global goods export share has been stuck around 1.8%. The argument isn’t that India should dominate labour-intensive manufacturing. It is that India should stop under-participating in it.

The four self-imposed constraints

Baran lays out four hurdles, each of which India could fix on its own:

Rising tariffs and Quality Control Orders. Import duties have crept up. QCOs — quality control orders that in principle exist for safety — have exploded in number and increasingly function as protectionist non-tariff barriers. The Lerner symmetry theorem makes the point bluntly: an import tariff acts as an export tax, because your inputs get more expensive and your exporters lose competitiveness.
Persistently overvalued real exchange rate. The rupee’s REER has stayed high. India’s best export decade (2002–2012) coincided with a much weaker REER. The over-valuation is driven by India’s two genuine successes — strong services exports and steady remittance flows — and the authors estimate the rupee is 5-7% above where it would otherwise sit. A textbook Dutch disease, except the disease is being caused by services rather than oil.
Falling GVC integration. India’s backward integration into global value chains peaked at 25% in 2012 and fell to 17% by 2020 — well below East Asian peers. Once you fall out of these networks, firms consolidate around alternatives and re-entry gets harder.
Skipping every major bloc. India walked away from RCEP in 2019 and hasn’t applied to CPTPP. The authors argue this is the strategic miss of the decade.

The number: $500 billion and 24 million jobs

The headline finding comes from a Poisson Pseudo Maximum Likelihood gravity model (PPML — the standard fix for the fact that trade matrices contain lots of zeros, which break log-linear regressions). For 2022, India’s actual goods exports were $437 billion. The model’s predicted potential, based on how an average country with India’s characteristics should be trading, was $516 billion higher. India is also “missing” roughly $300 billion of imports that would make its exports more competitive.

The biggest missed corridors:

China: ~$175 billion — the largest single opportunity
Pakistan and Bangladesh: jointly very large
About half of the total $516 billion missed opportunity sits in India’s immediate neighbourhood

T.G. Srinivasan applies an OECD trade-in-value-added elasticity of around 0.3 to translate the export gap into jobs: roughly 24 million direct and indirect formal jobs, equivalent to about three years of net additions to India’s youthful labour force.

The policy ask

The authors are direct about what they want:

A government white paper laying out a coherent export vision
Rationalising tariffs and stopping the use of QCOs as disguised import barriers
Recalibrating the FTA strategy — RCEP (where India already has FTAs with 14 of 15 members; only China is the holdout) and CPTPP
An explicit “neighbourhood pivot” on trade with Pakistan, Bangladesh and China, treating trade as separable from political tension

“If the model is to be believed, we will flood their markets. So they should be most scared of us.”

The discussants push back

Arpita Mukherjee (ICRIER) broadly agrees but sharpens the diagnosis. India has the big firms and the small firms but is missing the middle — the mid-size export-oriented manufacturers that Vietnam has cultivated. India’s SEZ policy was copied from China but liberalised into incoherence; China only opened its economy through tightly controlled zones, never across the board. India treats QCOs as import barriers; the EU treats them as quality standards applied uniformly to domestic and imported goods — a useful distinction. On Korea, she points out a textbook example of FTA mis-negotiation: India refused to give Korea a zinc concession because India wanted to be the big player in zinc; Korea simply set up a smelter in India, imported what it needed via a phased duty, became a major auto exporter from India, and is today a global zinc supply chain player while India debates the issue.

Probir De (RIS) raises econometric concerns — the gravity model doesn’t capture supply-chain disruptions, delayed export incentives (the RoDTEP and IGST refund lags that small exporters complain about constantly), or non-tariff barriers. He notes the title is misleading — India is already at ~$450 billion in exports; the $500 billion is the additional potential, not the headline.

Prabhakar Sahu (NITI Aayog) is the most critical. He argues the gravity model is built on a “weak foundation” — distance, language, contiguity work very differently for Pakistan than for the US, and the model can’t capture that. His more important challenge: India’s exports have grown 11% CAGR over five years, total trade went from $1 trillion to $1.75 trillion, which by global standards is strong. The real diagnostic he offers:

“66% of world trade… that amounts to $16 trillion of imports — how much are we getting? 0.2%. We are getting 20% share in 3% of world’s imports. There is a big misalignment between our supply and the world’s demand.”

That is the sharper framing of the entire problem — India is good at exporting things the world doesn’t want to import in volume, and absent in the categories that dominate global trade. Textile and apparel is a near-trillion-dollar global market; India’s share is about $35 billion. HS61 and HS62 (knitted and non-knitted) are 58% of that market; India holds about 1.5%. Leather and footwear is a $300 billion market; India does $5 billion, under 1.9%.

The China question

This is where the room visibly tightens. The Apple-in-China book by Patrick McGee gets cited from the audience: China didn’t just open up, it arm-twisted foreign capital into transferring technology. A former CII researcher who studied China for the commerce ministry in 2017-18 describes the practical reality: send a prototype of a finished product to a Chinese buyer and you’ll never hear back — they’ll reverse-engineer it. China imports intermediates from ASEAN but blocks finished goods.

The authors don’t disagree but make a structural point. China is a $2.4 trillion import market — the second largest in the world. The question isn’t whether China plays fair (it doesn’t) but whether India has a strategy to engage with it at all. The proposal: link investment and trade — offer a more liberal FDI regime to China in exchange for serious non-tariff barrier reductions.

The image problem

Sanjay Kathuria closes with the most uncomfortable observation. Read any FT or Economist coverage of multilateral trade negotiations and India shows up as the spoiler in the room. The hesitancy isn’t tactical, it’s reputational, and it’s expensive.

“It is part of the thing that our hesitancy to trade is reflected in the negotiations that we have. And therefore this is what part of this paper is — that can we let the elephant really dance? We’re not letting the elephant dance because of… the spoiler in trade comes back to our own hesitancy and our own self-imposed constraints.”

Baran ends with an Odia proverb that captures the authors’ frustration neatly: you’re so scared of the thief that you eat with broken utensils.

Key Takeaways

India’s 2022 actual goods exports: $437B. CSEP gravity-model predicted potential: $437B + $516B = $953B. Implied missing exports are roughly double actual exports.
Missing imports (inputs that would make India more export-competitive): ~$300B.
Translated employment gap: ~24 million direct and indirect formal jobs, using an OECD trade-in-value-added elasticity of 0.3.
Largest single missing-export corridor: China at ~$175B. Roughly half the total $516B sits in India’s immediate neighbourhood (China, Pakistan, Bangladesh).
India’s global goods export share has stagnated around 1.8% for years.
Manufacturing share of employment: India <13%, Vietnam 22%, China 30%. Agriculture still absorbs 42% of India’s workforce.
India’s GVC backward integration peaked at 25% in 2012 and fell to 17% by 2020.
Lerner symmetry theorem: an import tariff is mechanically equivalent to an export tax. Raising input duties protects domestic substitutes at the cost of export competitiveness.
India already has bilateral FTAs with 14 of the 15 RCEP members. The one it doesn’t have is China — which is the precise reason it walked away from RCEP.
Best Indian export decade (2002-2012) coincided with India’s lowest real effective exchange rate. The rupee is estimated to be 5-7% over-valued today because of strong services exports and remittance flows — Dutch disease via services rather than commodities.
QCOs (Quality Control Orders) have proliferated in India and increasingly function as non-tariff barriers rather than safety standards. Contrast with EU, which applies the same standard to domestic and imported goods uniformly.
The PPML (Poisson Pseudo Maximum Likelihood) gravity model is the standard fix when trade data contains zero flows that break log-linear estimation.
Mandeng framework: 2x2 of (India’s share rising/falling) x (global demand rising/falling). India’s “missed opportunities” quadrant — growing global demand, falling Indian share — is concentrated in labour-intensive sectors: textiles, leather, footwear, apparel.
Prabhakar Sahu’s sharper diagnostic: 66% of world trade is $16T. India captures 0.2% of that. India holds 20% in only 3% of world imports. The problem is structural misalignment between Indian supply and global demand.
Textile and apparel: ~$1T global market, India ~$35B (~3.5%). HS61 + HS62 (knitted/non-knitted) are 58% of the market; India holds ~1.5%.
Leather and footwear: $300B global market, India ~$5B (<1.9%).
Mexico is now a major footwear exporter — sector is moving away from labour-intensive toward branding, technology, anchor investors.
Bangladesh’s garment dominance was built on anchor investors and the RMG (ready-made garments) lottery system.
China-Korea FTA precedent: when Korea was denied a zinc concession by India, Korea built a smelter in India under phased duty, made cars locally, and is now a global zinc exporter — India lost on both ends.
Apple’s success in India is the only meaningful PLI scheme story across 13-14 sectors. The other 12 sectors don’t have an equivalent example.
India-Pakistan trade is closer to $1B than zero — much of it routed through Dubai. Politics-imposed trade barriers are leakier than they look.
India has not been invited to CPTPP. The first step is changing India’s reputation as the negotiator who walks out.
CSEP’s recommendation: a government white paper laying out a coherent export-import vision; rationalised tariffs; QCOs reserved for safety not protection; recalibration on RCEP/CPTPP; explicit neighbourhood trade pivot delinked from politics.

Claude’s Take

The headline number is fragile. Three separate discussants flag this, and they’re right — gravity models give you “what an average country in your position would do,” not “what is actually achievable.” Applying $0.3 of employment per dollar of exports using a World Bank elasticity calibrated on 1999-2012 data is a stretch given how much of India’s exports have shifted to capital-intensive sectors (pharma, autos, electronics) where that elasticity is much lower. The 24 million jobs figure should be treated as motivational rather than predictive.

What survives the criticism intact is the structural story. India holds 0.2% share in 66% of world trade and 20% share in 3% of world trade. That is not a number you can argue with — it is a description of misalignment between what India produces and what the world buys. The labour-intensive shortfall is real, the tariff escalation on inputs is real, the missing-middle problem (giant firms and tiny firms, no scale-up layer) is real, and the strategic cost of being outside every major trading bloc is real. The paper’s contribution is putting all of these into one frame and saying out loud that they are all self-imposed.

The discussion gets more interesting when it pushes past the model. Arpita Mukherjee’s points on FTA negotiation craft — rules of origin, investment chapters, phased tariff calendars — are where the actual policy work lives, and India has been losing these negotiations on technicalities for two decades. The Korea-zinc story is a small masterclass. Sanjay’s image problem observation is the bluntest thing said all afternoon and probably the truest.

What the paper doesn’t fully grapple with: China’s playbook isn’t replicable because the conditions that made it possible (pre-WTO subsidy regime, 25% currency undervaluation, single-party industrial policy, state-controlled banking) aren’t available to India even if it wanted them. The authors are honest about this but the policy recommendations don’t fully reckon with it. The argument “if Vietnam can do it, so can India” understates how much of Vietnam’s success rests on its ability to be the China-plus-one beneficiary precisely because it joined every bloc India avoided.

7 out of 10. Solid framing, useful data, clear policy direction. The discussants do most of the work of separating signal from noise. Worth reading the paper directly if you care about Indian trade policy — the seminar is a good guide to which numbers to trust and which to take as gestures.